Why Cairn Energy Froze Indian Assets

On July 8, 2021, Cairn Energy successfully froze 20 properties owned by the Indian government in Paris, France, valued at over €20 million. Two months earlier, Cairn Energy had filed a lawsuit against Air India in the U.S. District Court for the Southern District of New York, claiming that Air India, as a state-owned enterprise, should represent the Indian government in compensating Cairn Energy.

Who is Cairn Energy, and how did it manage to sue a major country and freeze its assets?
Cairn Energy is an Edinburgh-based energy company with a market capitalization of approximately $750 million—just 1% of Sinopec's $74 billion valuation. Despite being a relatively small company, Cairn Energy is well-known in the world of international taxation due to its prolonged $1.6 billion tax dispute with the Indian government.

Cairn Energy’s tax dispute is strikingly similar to the Hutchison/Vodafone case, as both involve capital gains tax arising from the indirect transfer of shares overseas. However, this article will not delve into the intricacies of capital gains tax or India’s retroactive tax laws dating back 50 years. Instead, we will focus on the role of the Bilateral Investment Treaty (BIT) in this case.

In this article, we will outline the background of the tax dispute and explain how this British company leveraged the BIT as a legal tool to protect its legitimate rights. Many Chinese companies operating abroad often overlook the use of international legal instruments to safeguard their interests. We hope this article raises awareness about the importance of protecting corporate rights.